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S.B. 13 makes sweeping changes to Delaware’s unclaimed property statutes

Posted By Administration, Thursday, February 16, 2017

On Feb. 2, 2017, Gov. John Carney signed Delaware S.B. 13 into law, significantly updating the state’s unclaimed property statutes. Many of the changes mirror the 2016 Revised Uniform Unclaimed Property Act (RUUPA), and others appear to respond to issues raised by the Temple-Inland case. The new law is intended to “bring greater predictability, efficiency and fairness to the state’s unclaimed property reporting process and compliance initiatives.” Following is a summary of several of the law’s most noteworthy provisions.

 

Lookback, Record Retention and Statute of Limitations

S.B. 13 reduces the lookback period for both audits and voluntary disclosure agreements (VDAs) to 10 years plus dormancy. It also defines an express record retention period of 10 years from the date a holder submits a report. The statute of limitations is now 10 years from the date the duty arose, whether or not the holder reported the property. The previous statute of limitations, although shorter, began to run from the time the holder reported the property.

 

Estimation Methodology

The new law mandates that the secretaries of finance and state develop estimation regulations by July 1, 2017. They must include permissible base periods; items to be excluded from estimation calculation; aging criteria for outstanding and voided checks; and a definition of what constitutes “complete and researchable records.”

 

Audit Conversion

Under the new law, all holders currently under audit may convert to a two-year accelerated audit. Holders under audit as of July 22, 2015, may convert to a VDA program. Holders have until 60 days after the promulgation of the new estimation regulations to decide whether to convert to an accelerated audit or VDA program. Interest and penalties will be waived if conversion is made. Holders remaining in the audit will be subject to mandatory interest that is waivable only up to 50 percent.

 

Subpoena Authority

Provisions of the new law give the state escheator the power to issue an administrative subpoena and the ability to seek enforcement of an administrative subpoena in the Court of Chancery. These provisions appear to address issues raised by Delaware Department of Finance v. Blackhawk Engagement Solutions.

 

Judicial Review

Among the new provisions adopted in Delaware is a process for appeal by holders to the Delaware Court of Chancery, replacing the previous multi-step administrative review process. Under the new appeal process, holders have the ability to challenge the state escheator’s determination of liability. The court’s standard of review is deferential to the state escheator regarding factual determinations, but errors of law will be reviewed de novo. The judicial review provision also expressly gives the Court of Chancery the authority to review questions of state or constitutional law related to the examination. This provision appears to be a response to the Temple-Inland case.

 

Indications of Owner Interest

S.B. 13 adds a specific list of owner activities that prevent running of the dormancy period. Indications of the owner’s interest in property includes:

  • A written or oral communication by the owner to the holder or agent of the holder concerning the property or the account in which the property is held.
  • Presentment of a check or other instrument of payment of a dividend, interest payment or other distribution.
  • Accessing the account or information concerning the account, or a direction by the owner to increase, decrease or otherwise change the amount or type of property held in the account.
  • Payment of an insurance policy premium with some exceptions.

The new law also specifies that if an owner has more than one investment or account with a holder, an indication of interest in one investment or account is an indication of interest in all of those accounts.

 

Knowledge of Death

The new law adopts the “knowledge of death” concept as a dormancy trigger for life insurance proceeds. “Knowledge of death” may be identified through any source, such as declaration of death, a death certificate or the comparison of the holder’s records against the Social Security Administration’s Death Master File.

 

Priority Rules

For the first time, the Delaware unclaimed property law includes a codification of the U.S. Supreme Court’s priority rules. It expressly prohibits Delaware as the state of domicile under the second priority rule from taking property into custody that is exempted in the first priority rule state. It also allows the state of domicile to claim foreign-address property but excludes property claimed under foreign law.

 

Owner Address

S.B. 13 adopts portions of RUUPA’s definition of an owner’s “last-known address.” The last-known address of an owner is defined as “a description, code or other indication of the location of the owner on the holder’s books and records that identifies the state of the last known address of the owner.”

 

Disposal of Securities

The new law specifies that the state escheator shall sell or dispose of securities on any established stock exchange or by such other means as soon as the escheator deems it feasible after the delivery. The escheator may not sell a security listed on an established stock exchange for less than the price prevailing on the exchange at the time of sale. The escheator may sell a security not listed on an established exchange by any commercially reasonable method.

 

S.B. 13 provides for indemnification of security owners for 18 months. The escheator will provide either a replacement security or the market value of the security at the time the claim is filed if the owner comes forward with that 18-month period.

 

Gift Cards

For the first time, Delaware’s statute defines “gift cards,” “stored value cards” and “loyalty cards.” Gift cards and stored value cards remain escheatable after five years of inactivity. The state retained its unique profit retention provision defining the amount unclaimed as “the amount representing the maximum cost to the issuer of the merchandise, goods, or services represented by the card.” S.B. 13 adds “Goods” and “Services” into the mix, as old statute only provided exemption for “maximum cost to issuer of merchandise represented by the card.” Loyalty cards are expressly exempt.

 

Holders are prohibited from transferring their unclaimed property liability or obligation, except to a parent, subsidiary or affiliate. This provision affects third-party, unrelated companies that issue gift cards on behalf of a business and appears to address some of the uncertainty resulting from the Card Compliant qui tam litigation.

 

Compliance Review

Another new provision in the law permits the state escheator to conduct a “compliance review” if the escheator believes a filed report was inaccurate, incomplete or false. The compliance review is limited to contents of report and all supporting documentation. The escheator is required to adopt rules governing the procedures and standards for compliance reviews, but no timeline was included in the statute.

 

Application of the New Law

S.B. 13 represents a major change in Delaware’s unclaimed property practices with many positive developments for holders. They include reduced lookback, clear record retention period, estimation regulations, statute of limitations regardless of prior reporting compliance, direct appeal to Court of Chancery, new definitions and new exemptions.

 

As with any new law, it remains to be seen how provisions will be interpreted and applied. Holders await the regulations still in development regarding audit conversions to fast-track audits and VDAs, and the new compliance review provision. Clarification from Delaware will help holders make informative judgments about whether to convert current audits into VDA or fast track audits, and whether other changes to their unclaimed property practices are warranted.

 

Tags:  audits  Delaware  estimation  gift cards  RUUPA  unclaimed property 

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